PROBLEM 9-1. Present Value Analysis Carter "Flip" Allison recently rejected an

$8,000,000, five-year contract with the Vancouver Seals. The contract offer called for an immediate signing bonus of $3,000,000 and annual payments of $ 1 ,000,000.

To "sweeten" the deal, the president of player personnel for the Seals has now offered a $10,000,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 $1,000,000 Year 2 1,100,000 Year 3 1,200,000 Year 4 1,300,000 Year 5 1 ,400,000 Year 5 balloon payment 4,000,000 Total $10,000,000 Required Suppose you are Allison's agent and you wish to evaluate the two contracts using a required rate of return of 10 percent. In present value terms, how much better is the second contract?